Spin Master's Empire
There was no reason to think the day would go badly. Spin Master Toys had done remarkably well that holiday season, selling 400,000 units of the Air Hogs Sky Shark - a motorized styrofoam airplane powered by compressed air. It was Boxing Day, 1998, and Ben Varadi had come in to the office to do a bit of work, but something was wrong with the phones. Checking the darkened lobby, Varadi, one of Spin Master's three owners, found the receptionist's console awash in white light. Angry customers had jammed the lines trying to contact the Toronto-based company. Varadi started to take the calls. "Oh my God!" he recalls thinking. "Everybody got these planes for Christmas, they've opened them up, gone out to fly them and they've either broken a wing or they're having a problem."
The company was swamped by calls all day. "There were so many, I had to fake an answering machine: 'You've reached Spin Master Toys. Please call back tomorrow. We are closed for today,' " Varadi says. "I didn't know what to do." Some customers reacted to his schtick with profanities. Most were angry that the Air Hogs' fragile wings had snapped in crashes the first time their kids played with them.
In the ensuing weeks, Spin Master voluntarily shipped more than 100,000 replacement wings to irate customers, as well as making changes to the design. It was a tough initiation for Varadi and his two partners, then all in their 20s, as their first major success seemed to be turning to disaster. But they went on to sell more than three million Air Hogs and cemented themselves as a force to contend with in the global market for toys. As the lone division of Seiger Marketing Inc., Spin Master has gone from $542,000 in revenue in 1994, to $7.9 million in 1998, to a remarkable $103.4 million this year, employing 93 staff in Toronto and another 17 in its Hong Kong office. Profits are confidential in the privately held company, but accounts shown to Maclean's in support of the revenue figures confirmed it makes tidy earnings.
Behind the success story is a well-matched trio of owner-managers. Varadi, 30, is the company's personable, wisecracking head of product development, raised, as he puts it, on a steady diet of television. Anton Rabie, 29, is Spin Master's no-nonsense president; he rarely smiles but has a proven knack for landing and keeping the accounts of heavyweight retailers such as Wal-Mart and Toys "R" Us. And Ronnen Harary, 29, is the soft-spoken and thoughtful chief executive, a moderating presence somewhere between Varadi's occasionally over-the-top hilarity and Rabie's persistent solemnity.
The mix has impressed the competition. Alan Hassenfeld, CEO of Pawtucket, R.I.-based Hasbro Inc., the world's No. 2 toy company with $6.2 billion in revenues last year, is full of praise for his upstart mini-challenger. "I like anyone who has energy, spunk and creativity and is basically thumbing their nose at the establishment, which is me," Hassenfeld told Maclean's. "I think they've done a brilliant job."
Still, it has not always been an easy climb. The trio's first major test was the Air Hogs product failure. In addition to shipping the replacements, they made what the toy industry calls a "running change," modifying the manufacturing process in mid-flight by taping tough Mylar strips to the wings for reinforcement. Since then, they have redesigned the plane entirely and rechristened it the Air Hogs Liberator. The fuselage is now made out of plastic and the wings are designed to separate from the body in a crash to better absorb impact. Furthermore, notes Harary, Spin Master today employs six customer service agents to attend to, as he says, "any product issues that happen to arise."
Unfortunately, history sometimes repeats itself. Last spring, Spin Master introduced E-Chargers, small styrofoam airplanes that come with a battery-operated charger to power up the toy's propeller. While an Air Hogs unit retails for $39.99, E-Chargers sell for $18.99 and are aimed at younger children, aged 5 and up. As with the Sky Shark, Spin Master received complaints about the Styrofoam wings breaking on the E-Chargers. The company again resorted to Mylar tape to reinforce flimsy wings and is looking at more rugged types of Styrofoam.
The two incidents do not seem to have hurt the company's reputation. Debbie Nicholson, divisional merchandise manager at Toys "R" Us (Canada) Ltd., has worked with Spin Master almost from its inception, and sees the trio of Harary, Rabie and Varadi as "creative, innovative go-getters" who stand behind their product. "They usually react to any quality issues before anyone realizes there is a quality issue out there," says Nicholson. "They are proactive - they are not reactive."
How do they operate so smoothly? A lot has to do with the implicit trust the close friends have in each other. Coincidentally, both Harary and Rabie emigrated from South Africa as children, at 6 and 7 respectively. They met in Canada, at a summer camp north of Toronto, as nine- and 10-year-olds, becoming fast friends. Rabie later met Varadi, a Toronto native, in the business program at the University of Western Ontario in London. They often spent late nights together studying Varadi's exceptionally detailed class notes.
Then, as the tale goes, Harary's grandmother, returning from a visit to Israel, brought as a gift a novelty item that Harary felt could become another Pet Rock. He convinced Rabie to go into business with him, manufacturing what came to be known as the Earth Buddy, essentially sawdust and grass seed stuffed into the end of a nylon stocking and shaped to resemble a human head. When soaked with water, the seeds sprouted what looked like green hair. The pair decided to make 5,000 units for Mother's Day in 1994, but soon decided they needed someone to oversee manufacturing. Rabie suggested Varadi. He and Harary hit it off, and the trio went on to sell 4.3 million Earth Buddies, which retailed for $7.99.
The next year, the three of them developed and marketed Devil Sticks, a three-piece, twirling set of batons, which gave rise to the Spin Master name and took them into the U.S. market on a large scale for the first time. Retail price: $14.99. They sold 1.75 million units. In 1998, the trio took the toy world by storm with the Air Hogs Sky Shark. They have since expanded the air-powered line to include a car, two rockets and, this spring, a submarine for swimming pools. Last Christmas, they scored another hit, launching Flick Trix Finger Bikes. Parents, children and collectors snapped them up, with retailers selling the $9.99 die-cast miniature bikes - duplicates of actual brand-name BMX bicycles - at the rate of 300,000 units a week at their peak. They've sold six million so far.
This holiday season "the boys from Canada," as they are known in some U.S. circles, have set their sights on "extreme" toys, expanding the Flick Trix line to include a variety of motocross bikes, motocross action figures and play stations. Next spring, they plan to take on the world's largest toy company, Mattel Inc., manufacturer of the Polly Pocket! line of miniature dolls and accessories for girls, with their own line, called Key Charm Cuties. "We want to do something that no Canadian company has ever done," Rabie says earnestly. "We want to develop world-class toys and become one of the biggest, most successful toy companies in the world." Already, they are a contender that can't be toyed with.
Like a Rocket
Spin Master Toys has seen annual revenue take off in the past three years: (in millions)
Maclean's November 27, 2000